CBDT – POEM clarification for India based regional HQ operations

CBDT issues clarification (Circular dt. 23 Oct’ 17) on POEM applicability to multinational companies with regional headquarter structure wherein certain employees having multi-country responsibility or oversight over the operations in other countries of the region are working from India;

Para 7 of the guidelines provides that the place of effective management in case of a company engaged in active business outside India (ABOI) shall be presumed to be outside India if the majority meetings of the board of directors (BoD) of the company are held outside India. However, Para 7.1 of guidelines provides that if on basis of facts & circumstances it is established that BoD of the co. are standing aside & not exercising their powers of management & such powers are being exercised by either the holding company or any other person (s) resident in India, then the PoEM shall be considered to be in India.

CBDT cites para 7 of POEM guideline (Circular no 6/2017) and clarifies that “so long as the Regional Headquarter operates for subsidiaries/ group companies in a region within the general and objective principles of global policy of the group laid down by the parent entity in the field of Payroll functions, Accounting, HR functions, IT infrastructure & network platforms, Supply chain functions, Routine banking operational procedures, and not being specific to any entity or group of entities per se; it would, in itself, not constitute a case of BoD of companies standing aside and such activities of Regional Headquarter in India alone will not be a basis for establishment of PoEM for such subsidiaries/ group companies.”

CBDT however states that where the clarification is found to be used for abusive or aggressive tax planning , GAAR may be triggered

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